Australian Vintage: investing against the curve

ByNigel Huddleston

| 16 July, 2018

Over the past 12 months, the McGuigan wine brand has slipped quietly into the number three position in Nielsen’s stats for the UK off-trade, gliding past Blossom Hill. Echo Falls is within its sights, though overhauling market leader Hardys could still be some way off. Unusually for the chief executive of a public-listed company, in this case McGuigan brand owner Australian Vintage, coveting the top slot isn’t the number one priority, says Neil McGuigan.

“No, no, no,” he says, almost in unison with Julian Dyer, the ex-Sainsbury’s buyer who is now chief operating officer of its UK and Europe division. “If you’d have said to me in 2010 that my KPI was to be the third largest brand in the UK I’d have laughed at you,” McGuigan adds. “It was never our intention.”

That was the year that then-chief winemaker Neil took over the helm from brother Brian, who had founded the company with wife Fay in 1992. Within a decade it was the fourth largest wine firm in Australia, and over the past 10 years its UK profile has become that of the big wine brand that it’s OK to like, blending quality with commercial clout, its credibility supported by multiple award wins of the IWSC’s International Winemaker of the Year award.

Of course, for some Australian wine producers the UK is diminishing in importance as the pull of China wields its gravitational force. The hammer blow of exchange rates and ongoing uncertainty caused by Brexit have caused further alarm, most notably with Brown Brothers turning its back on what it called an “unforgiving and unsustainable” market.

But McGuigan sees the Brexit challenge as a reason to redouble efforts, not pull away from them. “When Brexit hit that hurt our profit in FY16, and Julian and I looked at each other, because we were just getting on a bit of a roll, and said what do we do: cut costs, slow down, get rid of people, cut the cloth, blah blah blah?

“We did exactly the opposite. We employed more sales people, we did an above-the-line advertising campaign for the first time and did a TV campaign in the Republic of Ireland and Northern Ireland.

“We think the British economy will come back. The exchange rate went from 51p against the Australia dollar to 62p. That’s 20% – we don’t even make 20% [margin]. But we said ‘no, we’ll take a long-term view’. We’ve never been more committed to the UK market. Now, because of the hard work we’ve done, we’ve come out the other end.”

Not that McGuigan is blind to the opportunity provided by China. Far from it: AV has established distribution with wine trade heavyweights COFCO and Vintage China in the territory and has its own office in Hong Kong. “It’s as big as a broom cupboard but we’ve got four people using it to cover the rest of Asia and the Pacific,” says McGuigan.

“We’re working really hard with China but we have not walked away from the traditional markets, and we will never walk away from them.”

Dyer adds: “The old adage is that it’s good to invest against the curve and what we’ve done since the Brexit vote has really worked for us.

“We almost had to do it because the McGuigan brand had built such good momentum over the past five years. We’ve got a good plan and a good marketing proposition that’s delivering what our customers want. We can’t just step away for a year and then pick up the reins again. It doesn’t work like that.”

While Brexit has forced producers and distributors to reappraise their strategies, it’s also brought a softening of attitudes in the multiple buying community, with global supply problems adding to the mix, making it harder for them to call the shots than it has been in a long time.

“There is a shift in approach,” says Dyer. “If you go back a few years there was a generation of buyers – and I’d include myself in that – who’d never known anything but deflation. It was a bit of shock to everyone in the system to think that if they didn’t pay more there wouldn’t be anything on the shelves. There is a greater recognition that inflation had to happen and that consumers, even though they may not want it, know higher prices have to come too.

“It’s made many consumers want to buy better quality but less often. That’s where we can do a job, because we’re here with a high quality, premium brand proposition that delivers better value than some of our competitors. That Rubicon has been crossed.”

Softer approach

Supermarkets have generally abandoned high/low promotional strategies in favour of a softer medium/low model, which Dyer says he prefers.

“If the customer comes into a store and sees a wine’s at £7, when it’s normally £8, if it’s back to £8 next time it will still be their favourite brand and they’ll probably still buy it. In the old days of going from £12 to £6 they wouldn’t buy it when it was £12. High/low does distort consumer behaviour. The medium/low model allows both own-label and brands to grow more strongly because you’re not just using price. You’re relying more on what people want to buy.”

AV is also looking to extend the McGuigan trade footprint into greater numbers of independents and on-trade accounts with more upmarket wines, helped by an expansion in personnel from eight to 26 during Neil McGuigan’s eight years in charge.

“Historically we haven’t had the resource to go after every channel,” adds Dyer. “We have a two-word one-liner which is ‘hasten slowly’. We’d rather go in capably and be able to back our customers up than grab a sale and never see them again for a year. We like to work closely with customers – we haven’t had that resource to do that with independents in the past.”

A focus on wine quality has to be a given in that sector. The wheeler-dealer indie is a dying breed and few these days are impressed by the prospect of access to cheap wine for its own sake. Though its penetration of the independent wine merchant market may be minimal, McGuigan probably has more in common with that part of the market than most of its big brand peers.

“People want to be excited by wine,” says McGuigan. “If you dumb down wine and make it an FMCG product, if you have an attitude that that’s what your wine is, you’ll get an FMCG price and you’ll go broke. We have two missions: make the wine the hero and over-deliver on quality at every price point. They’re beautiful motherhood statements, put them on the side of the winery and they make you feel good. But you have to go and live by them, and that’s what we’ve done.”